The Bank of Canada's record-low interest rates have been in place for almost a year and during that time, consumer complaints about mortgage prepayment penalties have been steadily rising.
A story in the Globe and Mail says the Ombudsman for Banking Services and Investments (OBSI) has opened 301 new consumer complaints in the quarter that ended in January, which is twice the number seen in the same quarter last year and almost triple the number seen in 2008.
Hein Moes, an Invis broker in Victoria, says lenders will not bend on interest rate differential (IRD) penalties when interest rates are so low, causing many clients to opt out of refinancing for a better rate.
"I don't know when we're going to see some release in that department," said Moes. "If you can't save your penalty before the original maturity date of the mortgage, then you really have to have a hard look at whether you want to do it or not. And even if you take the best discounted deal with the same lender, they're going to want to see compensation from that."
In the latest federal budget, Finance Minister Jim Flaherty said he will standardize how prepayment penalties are calculated and disclosed to consumers, but details have not yet been revealed.
Douglas Melville, the head of the OBSI, told the Globe in most cases the lender's disclosure is clear, but there are some instances when the customer's argument has legs.
"At the moment, we have about a dozen case files still open where some form of compensation is likely to result," Melville said. "We believe compensation is warranted due to a lack of clear disclosure by the firm of the prepayment penalty calculation."
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